SueвЂ™s daughter recently broke her leg. While her daughterвЂ™s feeling much better, the incident left Sue with a few extra medical bills she wasnвЂ™t expecting.
For this reason, Sue is looking for help to get the medical bills paid. After asking Siri how to apply for personal loan, Sue learns she can take one out through a bank or online lender.
Since she doesn’t need collateral for this type of loan, Sue feels comfortable taking out a loan for $5,000 with an 8% interest rate. SheвЂ™ll make a payment of about $100 each month for 5 years to pay off the personal loan. 3 By taking out a personal loan, Sue can be better able to handle this unexpected expense without it payday loans SC being a huge financial blow.
Using a Personal Loan to Consolidate Debt
Jack had very little savings when he started his food truck business. To pay for supplies, he used his credit cards. He now has balances of $5,000 on two cards, and one card with a balance of $10,000. ThatвЂ™s $20,000 of debt that needs to be paid off.
Jack researches his options and finds out he can get a $20,000 personal loan to pay off his debt. JackвЂ™s credit cards have high interest rates, ranging from 10% to 20% on the balances. Instead of paying hundreds of dollars on interest, he can save by putting the amounts together in a personal loan to focus on paying off the lump sum of $20,000. And since his loan has an interest rate of just 8%., this lowers the amount heвЂ™ll pay overall on the debt.
Understanding the Details of Personal Loans
Even though personal loans can be helpful, itвЂ™s important to consider a few things before taking out a personal loan. Understanding whatвЂ™s involved with a personal loan will help you avoid issues that could come up later. Here are a few questions to ask yourself when you are thinking about an installment loan:
Can I make the payments? Look at your monthly budget to see if you can afford the amount due each month. It can be a struggle if youвЂ™re scrambling every time an installment is due.
What will I pay in all? Like other loans, personal loans usually charge interest rates and fees. In addition to paying back what you borrow, you can expect to pay an additional amount. This can range from hundreds to thousands of dollars, depending on the loan and bank.
Say you take out a personal loan for $30,000 with a 10% annual percentage rate (APR). APR is your interest stated as a yearly rate. In simpler terms, itвЂ™s the price you pay to borrow money. So if you took seven years to pay back this loan, you could end up paying more than $40,000 total. 3
Is it a need or a want? While emergencies happen, sometimes itвЂ™s better to save up and use your own funds to pay for special purchases. Thinking through factors like wants and needs can be helpful when considering if a personal loan is the right choice.
Personal loans can be a great way to get money when you need it, like in Sue and JackвЂ™s situations. But rushing into a personal loan for an expense you could have reasonably saved for can lead to unnecessary debt. If you do your research and understand your options, you can decide if a personal loan is the right fit for you.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.